The Middle Class Two Income Trap

[ThePythonicCow]

Re: The Middle Class Two Income Trap

Well if Roosevelt said it, it must be true. I'll wake up when you put the paranoid pills down. That goes for you too Cow.

Enjoy your long sleep, cjppjc .

[ThePythonicCow]

Re: The Middle Class Two Income Trap

This result is what EJ has mentioned, as has Dr. Michael Hudson: the financialization of American life via mortgages has decreased quality of living in every way.

Yes. The financialization of America (and many other countries) has lowered our quality of living (as measured by material goods) while also weakening the moral fabric of our dominant institutions and diluting the productive capacity of our industrial base.

Well, no. I wouldn't say that the financialization caused this, anymore than I would agree with the good Mr. Coles that replacing local equity with remote debt caused this.

But such are important elements, more easily measured than some elements, of the complex syndrome that afflicts us.

[Chris Coles]

Re: The Middle Class Two Income Trap

Yes. The financialization of America (and many other countries) has lowered our quality of living (as measured by material goods) while also weakening the moral fabric of our dominant institutions and diluting the productive capacity of our industrial base.

Well, no. I wouldn't say that the financialization caused this, anymore than I would agree with the good Mr. Coles that replacing local equity with remote debt caused this.

But such are important elements, more easily measured than some elements, of the complex syndrome that afflicts us.

Very sharp Wriggly,

Nice one, and at my expense too.

What I was trying to get across was a specific timing relative to the change in perception here in the UK. Once, the City of London was well known to operate on the principle of honesty and respectability; that the hand shake was all the contract you needed. We built a very prosperous nation on the back of those simple principles; caring for the overall prosperity of the nation..

You might well have built the military and industrial complex before the changes that I define as the starting point, and yes, many before that time were instrumental in waging war, financial or otherwise, against the ordinary people. But for the sake of argument, it was the beginning of the FIRE economy that was in debate. The relatively recent disappearance of the prosperity of the middle class since the end of WW2. You were all debating the loss of something that had been, within a lifetime, in existence; prosperity.

As for the use of that word "Great", I was indeed talking about the whole, rather than the particular.

[ThePythonicCow]

Re: The Middle Class Two Income Trap

But for the sake of argument, it was the beginning of the FIRE economy that was in debate.

Let's imagine that I have never had measles (so have no immunity to it), that I allow my health and immune system to weaken, and that I spend some time with children who are sick with measles.

At some point I will break out in the classic skin spots of measles and I will go through a period of being sick with measles.

It is true that the beginning of the spots marked the beginning of my overt sickness.

But those spots did not cause that sickness.

I would suggest that the London meeting in 1964 (like the first visible spots of measles) first replacing local equity with remote debt marked the onset of the financial sickness of the middle class, but did not cause that sickness.

I would suggest that the causes lay further back in time, as the impersonal agents who would evolve into the masters of FIRE gained strength while the middle class who would become the victims of FIRE grew weaker in moral and economic strength.

Unfortunately my measles analogy breaks down at a key point. Human civilization, unlike the immune system of a healthy living plant or animal or human, does not have as well developed an immunity system. Civilization tends to forget the ills of the past after the old generation has passed on, leaving us susceptible to recurring infections of a similar nature.

[thriftyandboringinohio]

Re: The Middle Class Two Income Trap

... as the impersonal agents who would evolve into the masters of FIRE gained strength while the middle class who would become the victims of FIRE grew weaker in moral and economic strength.

Very nicely put. They did it, but we let them.

[Starving Steve]

Re: The Middle Class Two Income Trap

I watched the standard-of-living go down the drain in the U.S. when it stuck its nose into Vietnam around 1962. That was the beginning of the end for the American way of life.

In 1962, I would go to the banks on my bicycle on San Jose and pick-up a roll or two of silver dollars, for their face value. Money was silver. Money was hard and hard to earn.

Vietnam grew into a cancer, and the silver dollars disappeared almost over-night. Then by 1965, all silver coin began to dis-appear. Then prices began to gallop upward: homes went up a thousand dollars per month on a base price of $17,000 for an average home in San Jose, Cal.

By the late 1960s, Vietnam was a carnage, and totally unwinnable. No-one knew how we had gotten into Vietnam, and no-one knew how to get out of it. So, the run on gold began. The European central banks, especially the Bank of France, began almost daily raids on Ft. Knox using the redemption rate of gold specified in the Bretton Woods Agreement (1944) at $35/oz. Then in 1971, Nixon closed the gold window, and the U.S. dollar became totally paper and tied to nothing but faith.

By the early 70s, inflation had become so bad in America that U.S. manufacturing jobs began to move abroad, first to Europe, and then to Japan. Double-digit inflation finally was recognized in government statistics by the late 1970s, but really, serious inflation had been galloping in America and worldwide since 1962.

The blow-off of the inflation came in 1979 when gold exploded to $840/oz. Jimmy Carter then appointed Volker to head the Fed, and the tight money policy began in earnest. Finally, prices began to fall, especially in real estate and in oil.

Greenspan replaced Volker at the Fed thanks to Ronald Reagan, and interest rates were suppressed. The money supply was allowed to grow once again in order that the economy would be allowed to grow its way out of deficits. Then came the phoney boom years called "the Naughty-Nineties" when the dollar was king.

Women were working along with men, and home prices just kept going up. Homes were used as ATM machines to finance consumption. Wall Street was completely de-regulated, and the FIRE bubble was on, full-steam ahead.

The bubble burst in 2007 when oil hit $147 per barrel. And now we have the mess that apparently requires more currency printing and more inflation. Bernanke came to the Fed, and the fun began with his zero interest rate policy and his TARP.

Senior citizens and savers were robbed of their interest income, and the Great Recession began. As incomes fell, consumption fell, not just for senior citizens but for everyone in America. To make up for declining consumption, the federal government under Obama tried to use stimulus spending, but this was folly, and the stimulus spending compounded the deficits which were built-up by decades of over-spending by governments.

To blame women going to work for this mess is to not understand this mess at all. The Great Recession was really the Great Reckoning for the Vietnam War and all of the wars and federal spending, stimulus, easy-money policies, and monetary expansion ever since. The folly began in 1962, and we are still at it to this day.... Nothing has been learned.

The common people of America (and the common people of the world) understand exactly what is happening, but the central bankers do not understand.

[dcarrigg]

Re: The Middle Class Two Income Trap

No. The only way to achieve economic justice is to FORCE the Financial Elite through political action . . . starting with Voting Out the Incumbents.

Or, if you have a better idea, I'd like to hear it . . . .

Couldn't help myself here Raja :p

[Chris Coles]

Re: The Middle Class Two Income Trap

To blame women going to work for this mess is to not understand this mess at all. The Great Recession was really the Great Reckoning for the Vietnam War and all of the wars and federal spending, stimulus, easy-money policies, and monetary expansion ever since. The folly began in 1962, and we are still at it to this day.... Nothing has been learned.

The common people of America (and the common people of the world) understand exactly what is happening, but the central bankers do not understand.

You and Wriggly Cow are either taking a US perspective, or a much longer viewpoint relating to the repeated imposition of financial slavery over the centuries.

What I am trying to do is paint the picture from the UK perspective.

As I see it the real underlying problem is a lack of a targeted responsibility. That we have to be able to point to a marker, (if you like), that draws the line between what we see as acceptable action and unacceptable action.

What I am trying to do is create a marker, a point of divergence. I believe that the fulcrum for change, (and why I titled the chapter with that phrase), was the unforeseen consequence of supporting Slater Walker in their decision to purchase another company to break it up and the associated decision by the savings institutions to follow.

We keep talking, today, about savings, but savings with banks, which ARE NOT SAVINGS INSTITUTIONS.

Apologies for shouting, but the point is essential.

We no longer have any function described as a savings institution. And, even more important, we certainly do not have any recognition of the responsibility to reinvest those savings back into the nation. back into the local communities from whence the savings originated.

Both of these facts are the unintended consequence of the Slater Walker decision.

And precisely why I am in direct correspondence with Mervyn King at the Bank of England to raise awareness of the need to create a new savings institution; The Capital Spillway Trust www.chriscoles.com/page4.html

Now you are very correct Wriggly Cow, I am blowing my trumpet. But unashamedly. Until the message sinks in that the only way to replenish the prosperity of the nation, any nation, is by the investment of savings as equity capital back into new job creation at the grass roots of society, nothing will change and the collapse will relentlessly continue.

[ThePythonicCow]

Re: The Middle Class Two Income Trap

You and Wriggly Cow are either taking a US perspective, or a much longer viewpoint relating to the repeated imposition of financial slavery over the centuries.

Well I am an American Cow :

Now you are very correct Wriggly Cow, I am blowing my trumpet. But unashamedly. Until the message sinks in that the only way to replenish the prosperity of the nation, any nation, is by the investment of savings as equity capital back into new job creation at the grass roots of society, nothing will change and the collapse will relentlessly continue.

I'll grant you half that claim. If that investment doesn't happen, the collapse continues.

However I won't grant you the other half of that claim. Efforts to reinvigorate that investment won't happen, because we have bigger problems.

Analogy time. If whomever is the world's fattest person at this moment doesn't get up and start jogging, they aren't going to restore their health. Unfortunately (I presume) that person needs a fork lift to get out of bed and is unable to take a single step on their own. (Yeah - I know - a gross analogy - sorry.)

We've been digging this hole since before the decisive event you cite involving Slater Walker, and the hole is deeper and broader than your analysis describes.

On the other hand, if you're able to prove me wrong, that would be awesome. Go for it. I hope you're right and successful.

[Chris Coles]

Re: The Middle Class Two Income Trap

Well I am an American Cow :



I'll grant you half that claim. If that investment doesn't happen, the collapse continues.

However I won't grant you the other half of that claim. Efforts to reinvigorate that investment won't happen, because we have bigger problems.

Analogy time. If whomever is the world's fattest person at this moment doesn't get up and start jogging, they aren't going to restore their health. Unfortunately (I presume) that person needs a fork lift to get out of bed and is unable to take a single step on their own. (Yeah - I know - a gross analogy - sorry.)

We've been digging this hole since before the decisive event you cite involving Slater Walker, and the hole is deeper and broader than your analysis describes.

On the other hand, if you're able to prove me wrong, that would be awesome. Go for it. I hope you're right and successful.

That sure is an awesome Cow Wriggley.

Mervyn King recently asked for suggestions to the ongoing problem of what to do if QE is not working. So I gave him my ideas for The Capital Spillway Trust. As you say, I went for it. Nothing ventured nothing gained.

[aaron]

Re: The Middle Class Two Income Trap

His readability index is a tad high from my modest Bovine brain and I'm still chewing my cud on this. But my initial impression is that his discipline of "ponerology" does a better job than I've seen before of explaining this paradox: is it some grand conspiracy or is it just "unintended consequences?"

.

No shit. It is like he purposely wrote the book so it could not be understood without a lot of effort. I have been meaning to make a second attempt at reading it...

[Ponce]

Re: The Middle Class Two Income Trap

You can still be a "Middle Class" even with a low paying job......if.......you have no debts.

Many think that being rich means having things.......if you hold 1.3 million in toys but are 1.4 millions in the hole you are then more poor than myself.

[Rajiv]

Re: The Middle Class Two Income Trap

Here was another link to Lobaczewski's paradigm - Dopamine, Wall Street and the Financial Meltdown

Neuroscientists have known for many years that the neurotransmitter dopamine plays a major role in drug addiction.

More recently, scientists have discovered that dopamine also plays a big part in basic risk-taking behavior.

For example, Time wrote in 2007:

Everyone can learn from their mistakes — but some people have genes that may make it harder. That's the message from German researchers, writing in tomorrow's issue of the journal Science, who have shown how a common gene variant affects some people's ability to respond to, and learn from, the negative repercussions of their actions...

Those men, it turns out, had a particular gene variant, or allele, that reduces the density of receptors for dopamine — a neurotransmitter that plays a key role in motivation, pleasure and addiction — in certain areas of the brain...

It's the first strong physiological evidence that the density of dopamine receptors may affect how people respond to negative inputs. Previous studies have established a strong link between a low density of dopamine receptors and addiction, obesity and compulsive gambling — conditions that suggest an impaired ability to learn from the consequences of bad decisions.

In 2008, Time noted:

A new study by researchers at Vanderbilt University in Nashville and Albert Einstein College of Medicine in New York City suggests a biological explanation for why certain people tend to live life on the edge — it involves the neurotransmitter dopamine, the brain's feel-good chemical...

Dopamine is responsible for making us feel satisfied after a filling meal, happy when our favorite football team wins, or really happy when we use stimulating drugs like amphetamines or cocaine, which can artificially squeeze more dopamine out of the nerve cells in our brain. It's also responsible for the high we feel when we do something daring, like skiing down a double black diamond slope or skydiving out of a plane. In the risk taker's brain, researchers report in the Journal of Neuroscience, there appear to be fewer dopamine-inhibiting receptors — meaning that daredevils' brains are more saturated with the chemical, predisposing them to keep taking risks and chasing the next high: driving too fast, drinking too much, overspending or even taking drugs.

David Zald, a professor of psychology and psychiatry at Vanderbilt, studied whether the brains of those thrill seekers differed in any way from those of the less adventuresome when it comes to dopamine. He gave 34 men and women a questionnaire to assess their novelty-seeking tendencies, then scanned their brains using a technique called positron emission tomography to figure out how many dopamine receptors the participants had. Zald and his team were on the lookout for a particular dopamine-regulating receptor, which monitors levels of the neurotransmitter and signals brain cells to stop churning it out when there's enough.

Earlier studies in rats had shown that animals that tend to explore and take more risks in new environments also tend to have fewer of these inhibitory receptors, and Zald wanted to find out if the same was true in people.

"This is one of those situations where the data came out essentially perfectly," he says. "The results were exactly as we predicted they would be, based on the animal data." That is, like the rats, humans who were more spontaneous and eager to take risks had fewer dopamine-regulating receptors than those who were more cautious.

The findings support Zald's theory that people who take risks get an unusually big hit of dopamine each time they have a novel experience, because their brains are not able to inhibit the neurotransmitter adequately. That blast makes them feel good, so they keep returning for the rush from similarly risky or new behaviors, just like the addict seeking the next high.

"This finding is really interesting," says Dr. Bruce Cohen, director of the Frazier Research Institute at McLean Hospital in Boston and a professor of psychiatry at Harvard Medical School. "It's a piece of the puzzle to understanding why we like novelty, and why we get addicted to substances ... Dopamine is an important piece of reward."

Vanderbilt has now taken this research a step forward. Specifically, Vanderbilt researchers have found that the brains of psychopaths have the dopamine abnormality creates a drive for rewards at any cost, and causing them to ignore risks.

As PhysOrg writes:

Abnormalities in how the nucleus accumbens, highlighted here, processes dopamine have been found in individuals with psychopathic traits and may be linked to violent, criminal behavior. Credit: Gregory R.Samanez-Larkin and Joshua W. Buckholtz

The brains of psychopaths appear to be wired to keep seeking a reward at any cost, new research from Vanderbilt University finds. The research uncovers the role of the brain's reward system in psychopathy and opens a new area of study for understanding what drives these individuals.

"This study underscores the importance of neurological research as it relates to behavior," Dr. Francis S. Collins, director of the National Institutes of Health, said. "The findings may help us find new ways to intervene before a personality trait becomes antisocial behavior."

The results were published March 14, 2010, in Nature Neuroscience.

"Psychopaths are often thought of as cold-blooded criminals who take what they want without thinking about consequences," Joshua Buckholtz, a graduate student in the Department of Psychology and lead author of the new study, said. "We found that a hyper-reactive dopamine reward system may be the foundation for some of the most problematic behaviors associated with psychopathy, such as violent crime, recidivism and substance abuse."

Previous research on psychopathy has focused on what these individuals lack—fear, empathy and interpersonal skills. The new research, however, examines what they have in abundance—impulsivity, heightened attraction to rewards and risk taking. Importantly, it is these latter traits that are most closely linked with the violent and criminal aspects of psychopathy.

"There has been a long tradition of research on psychopathy that has focused on the lack of sensitivity to punishment and a lack of fear, but those traits are not particularly good predictors of violence or criminal behavior," David Zald, associate professor of psychology and of psychiatry and co-author of the study, said. "Our data is suggesting that something might be happening on the other side of things. These individuals appear to have such a strong draw to reward—to the carrot—that it overwhelms the sense of risk or concern about the stick."

To examine the relationship between dopamine and psychopathy, the researchers used positron emission tomography, or PET, imaging of the brain to measure dopamine release, in concert with a functional magnetic imaging, or fMRI, probe of the brain's reward system.

"The really striking thing is with these two very different techniques we saw a very similar pattern—both were heightened in individuals with psychopathic traits," Zald said.

Study volunteers were given a personality test to determine their level of psychopathic traits. These traits exist on a spectrum, with violent criminals falling at the extreme end of the spectrum. However, a normally functioning person can also have the traits, which include manipulativeness, egocentricity, aggression and risk taking.

In the first portion of the experiment, the researchers gave the volunteers a dose of amphetamine, or speed, and then scanned their brains using PET to view dopamine release in response to the stimulant. Substance abuse has been shown in the past to be associated with alterations in dopamine responses. Psychopathy is strongly associated with substance abuse.

"Our hypothesis was that psychopathic traits are also linked to dysfunction in dopamine reward circuitry," Buckholtz said. "Consistent with what we thought, we found people with high levels of psychopathic traits had almost four times the amount of dopamine released in response to amphetamine."

In the second portion of the experiment, the research subjects were told they would receive a monetary reward for completing a simple task. Their brains were scanned with fMRI while they were performing the task. The researchers found in those individuals with elevated psychopathic traits the dopamine reward area of the brain, the nucleus accumbens, was much more active while they were anticipating the monetary reward than in the other volunteers.

"It may be that because of these exaggerated dopamine responses, once they focus on the chance to get a reward, psychopaths are unable to alter their attention until they get what they're after," Buckholtz said. Added Zald, "It's not just that they don't appreciate the potential threat, but that the anticipation or motivation for reward overwhelms those concerns."

Has anyone tested the heads of the too big to fails for this dopamine abnormality?

What are the odds that they have it? And if they have it, what are the odds that they will voluntarily start acting responsibly, especially given the broken incentive system?

[ThePythonicCow]

Re: The Middle Class Two Income Trap

No shit. It is like he purposely wrote the book so it could not be understood without a lot of effort.

I doubt it's purposely difficult. Some of the Polish mathematics papers of that period and before (late 1800's to mid 1900's) that I studied (when I was a student of such things, a long time ago) had a similar complexity and precision of language. That was a special time and place in human history.

[ThePythonicCow]

Re: The Middle Class Two Income Trap

Here was another link to Lobaczewski's paradigm - Dopamine, Wall Street and the Financial Meltdown

I wonder if we are still focusing too much here on the individual human, and not fully grasping the nature of the social, political and economic structures of human civilization.

I could perhaps make an interesting study of the soil in which redwood trees grow, of the soil's structure and composition, of its mineral, moisture and organic matter elements. But sooner or later, to understand redwoods, I have to understand the structure and life cycle of big trees themselves.

Similarly I can study the psychopathology and brain chemistry of powerful bastards until the cows come home, but our study of evil on a mass scale cannot end there. Sooner or later, to understand evil civilizations, I have to understand the structure and life cycle of human civilization itself.